Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Axis Capital Holdings Ltd (AXS, Financial) achieved an annualized operating ROE of 20%, driven by strength across most business lines.
- Operating earnings per share reached $2.93, marking a 31.5% increase over the prior year quarter and the highest quarterly operating EPS in the company's history.
- Overall premiums increased by 6.8%, with insurance and reinsurance segments growing by approximately 8% and 4%, respectively.
- Net investment income rose by 40%, or $54 million, compared to the prior year quarter.
- The insurance segment saw record new business premiums of $576 million, with strong contributions from property lines in North America and a 17% net written premium growth.
Negative Points
- The company experienced $47 million in catastrophe losses during the quarter, resulting in a 3.6% cat loss ratio.
- Despite strong performance, the reinsurance segment faced heightened competition, particularly in professional and casualty lines.
- The insurance segment's acquisition cost ratio increased to 19.6%, reflecting a mix of business change and lower ceding commissions in professional lines and cyber.
- The effective tax rate was 16%, higher than typical due to more profitability occurring in higher tax geographies.
- The company incurred $14 million in reorganization expenses, primarily related to severance and outplacement costs.
Q & A Highlights
Q: In your opening comments, you mentioned that early data reinforces your confidence in the reserve actions taken in the fourth quarter. Can you elaborate on that and touch on the central region of the greener accident years 2020 through 2023?
A: We completed a full review of our reserves this quarter, and our philosophy remains to take bad news quickly and wait for good news to be substantiated. We feel very confident about the assumptions used for all accident years, and the early data supports the strength of our reserves. (Peter John Vogt, CFO)
Q: You mentioned that share repurchases are an attractive option for utilizing capital, but there haven't been any additional buybacks since the Investor Day. Can you elaborate on why?
A: We decided not to buy back shares due to the material nonpublic information related to our restructuring actions. We maintain the view that our stock is undervalued and will opportunistically look to buy back shares in the future. (Vincent Christopher Tizzio, CEO)
Q: Can you explain the zero unfavorable reserve development this quarter?
A: We go through a thorough process to determine ultimate loss picks, and the data reinforced our assumptions, resulting in no changes to the ultimate expectations of claims. (Peter John Vogt, CFO)
Q: How do you balance the decision between share repurchases and investing in the business?
A: Our primary use of capital is to invest in the business, given the attractive returns we are seeing. However, we will also use our new $300 million authorization for share repurchases opportunistically based on market dynamics and our results. (Peter John Vogt, CFO)
Q: Can you provide more color on the insurance underlying loss ratios and what's driving the attractive loss picks?
A: The consistency in our attritional loss ratio is driven by a mix shift towards short-tail business and higher loss picks in long-tail liabilities. These factors offset each other, resulting in a stable loss ratio. (Peter John Vogt, CFO)
Q: Why is reinsurance cyber more attractive now, and what impact do you think the CrowdStrike event will have on the cyber market?
A: We see opportunities in reinsurance cyber due to premium adequacy and the ability to execute with loss caps. The CrowdStrike event is an opportunity for the market to reset appropriately, particularly around business interruption language and waiting periods. (Vincent Christopher Tizzio, CEO)
Q: Is the 51.8% attritional loss ratio in insurance sustainable given your view of pricing and business mix?
A: We do not see any material change in the attritional loss ratio for the remainder of 2024. (Vincent Christopher Tizzio, CEO)
Q: The reinsurance underlying loss ratio was 64.2% this quarter. Is this sustainable, and was there anything one-off in that number?
A: There were no one-off items in the quarter. We expect the reinsurance loss ratio to remain in the mid-60s range going forward. (Peter John Vogt, CFO)
Q: Will there be any additional charges related to the How We Work program that could preclude you from additional buybacks?
A: We do not expect any additional below-the-line charges related to the How We Work program. (Peter John Vogt, CFO)
Q: How sustainable is the current mix shift towards short-tail lines given the decelerating property rate increases and accelerating casualty rates?
A: For the balance of the year, the mix will remain as reported. Over time, we expect our liability writings to benefit from reinvestment in underwriting tools and appetite. (Vincent Christopher Tizzio, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
